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City manager outlines options to balance 2026 operating budget; council sets broad guardrails
Summary
City Manager Jay Birney presented options to address the 2026 budget, including revenue measures, operational efficiencies and possible reductions. Councilmembers largely agreed on preserving frontline public safety and avoiding deep cuts to core services, and asked staff to return with options and estimates as fiscal forecasts firm up in August.
City Manager Jay Birney briefed the Olympia City Council on June 24 on the city—s fiscal position and potential approaches to balancing the 2026 operating budget, asking for council guidance on priorities and guardrails for any reductions.
Birney told the council the city balanced its 2025 budget using $4,000,000 in reserves and that the general fund reserve rate has declined; he noted the city—s target fund balance is 25% while current reserves were at about 12.5%. "We balanced our 2025 budget utilizing $4,000,000 in reserves," Birney said, and described a menu of short-term and longer-term options staff has developed to reduce or offset a 2026 shortfall.
Why it matters: councilmembers emphasized that reductions to frontline public-safety staffing would be particularly harmful and that core, "essential" municipal services should be prioritized. Several members said they preferred revenue or efficiency options over service reductions and asked staff to bring specific, quantified options before the council.
Options presented and estimates cited: staff listed a mix of short-term offsets, operational changes and longer-term revenue options:
- PERS/PSERS contribution rates: state actuarial changes will lower the city—s contribution for public-employee retirement plans; Birney estimated roughly $1.6 million in budgetary savings tied to the change (some savings will fall in the current fiscal year and some in next year).
- Short-term operational adjustments: temporary delays to nonessential capital work such as street striping, temporary reductions to indirect charges and reassigning or time-shifting capital to cover operations in constrained areas were discussed as one-time or short-duration measures.
- Vehicle fleet: moving some light-duty vehicle replacement to a lease model was estimated as a possible $500,000 saving in 2026 if implemented for an initial set of vehicles; staff emphasized leasing would be phased in.
- Climate expense allocation: shifting a larger share of climate-related costs to utilities was estimated to free about $200,000 for the general fund.
- Local tax options: Birney cited a local sales tax option created by House Bill 2015 (a 1/10th of 1% public-safety sales-tax that jurisdictions may adopt) with an estimated yield around $3,000,000 for Olympia if implemented. He noted county-first election timing rules can affect implementation timing. He also referenced a non-voter utility-tax tranche returning to the general fund in later years (a half-percent slice of a prior 1% utility tax that had been dedicated to parks and that phases back to the general fund in coming years).
- Organizational adjustments: Birney noted a budgeted $300,000 saving the council previously asked staff to find in the City Manager—s Office; he said there are multiple ways to achieve that (including vacancy management) and staff will propose options.
Council guardrails and discussion: councilmembers broadly supported avoiding cuts to frontline police, fire and homeless-response staffing, noting those functions already operate under staffing strain and mandatory overtime in some units. Several members urged that the city avoid further erosion of core services (public works maintenance, permitting, and building repairs were cited) because restoration can take many years. Many councilmembers expressed a preference for first pursuing revenue options, partnerships and efficiency gains before pursuing permanent staffing reductions.
Timing and next steps: Birney said staff will continue developing detailed, quantified options and that a clearer budget gap figure should appear in mid-August once department budget inputs and the revenue forecast are finalized. He said staff will return to council with options and with packages that reflect the council—s stated priorities.
Ending: Councilmembers asked staff to present options with concrete dollar figures, noting the need for public transparency and public hearings on any proposed revenue measures. No formal reductions or decisions were taken at the study session.
